While much has been said about the need to suspend or mitigate against the right to buy and its context in London, there is now growing attention on the dysfunctional role the current land trading system plays in London’s housing crisis.
Southwark council has begun in earnest in the past few months the process of identifying and bidding for new development sites. Yet the extortionate asking prices offered on the open market mean any successful bids would make a significant hit on the viability of future schemes and impose a further burden on an already constrained budget for housing investment.
As present, the valuation of land for viability testing purposes in the planning process is set against the existing use of the site. Independently of this, a free market for land races away, with the speculative premium off the back of changes in public policy and public investment in an area – the so-called hope value – fully priced in on potential development sites across our borough.
If councils could spend their money on building new homes rather than on deadweight land transactions, we could go much further in delivering the kinds of homes that residents actually need. For this reason Southwark, like other serious house-building councils, are calling on government to revise the 1961 Land Compensation Code to ensure that new land holdings can be secured on terms that reflect the affordable nature of what we mean to build – affordable land for affordable housing.
To better document the scale of the problem, we have been developing a log of both real land transactions and existing use values (as used for viability testing) on sites allocated for housing development in our local plan, as part of an evidence base to help government assess the scale of the problem. Three recent hope value horror stories from Southwark illustrate the scale of the challenge:
1. A site in the centre of our borough, adjacent to land we own, became available to buy through a blind auction, and would have allowed us a more coherent development plot, meaning we could increase the number of council homes on this site from 80 to roughly 200. The existing use value was set at £1.5m, and after much internal discussion our surveyors put in a bid of £5.5m – a premium of around 14 council homes, which would have added around £50k cost per home.
The site eventually sold for £8.5m, meaning the council couldn’t develop itself. The winning bidder will likely be tempted to overdevelop the site with inappropriate height and massing (based on the experience of resident feedback on planning applications across the road), dilute affordable housing and infrastructure contributions, or simply leave it empty and undeveloped for many years until market conditions improve.
2. A large site on the east of the borough near the proposed site of a new Bakerloo lines station had an estimated existing use value of around £5m. When the land owners put the site up for auction they offered a guide price of £25m, and then withdrew it on the basis they could achieve a higher price later on with more advantageous policy environment.
3. Sites with recently consented permissions on Old Kent Rd, the focal point of a major regeneration in our borough, include 313-349 Ilderton Rd, whose viability assessment reported an existing use value of £1,853,250 . This site is now for sale at £15m. Similarly, the developer of 134-140 Ilderton Rd recently reported an existing use value of £2,539,500, and now seeks to sell for £10m.
In each of these cases, density, land value and viability in a high demand area tug at one other, and the free open market for land reinforces a circularity – on which turns planning permissions and site allocations into any other kind of tradeable commodity, dissociated from the council’s imperative of meeting local housing needs, securing sums for social infrastructure and ensuring good growth.
The demand for a different land compensation regime is not historically unusual: the 1941 Uthwatt report describes methods of community land value capture and the 1947 system of nationalised land use and developer betterment part-survives to this day. But the concept of compensation reform has only moved back in to the mainstream in recent months.
The prominence given by the communities select committee’s study of land value capture, Conservative council leaders calling for radical caps on land speculator profits, and researchers and commentators like Daniel Bentley, Rose Grayston and Thomas Aubrey from different parts of the political spectrum, have all highlighted the perversities of the current land trading system. Oliver Letwin’s influential review of build out rates also goes part of the way to identifying the problem proposing caps on land compensation sums as a multiple of a site’s existing use but only for agricultural to residential contexts, squarely at odds with government’s housing policy goal of “fixing the broken housing market … [and] planning the right homes in the right places“ as captured in exacting housing supply targets and delivery tests in high value, high demand inner city boroughs like Southwark.
Until these inconsistencies are resolved, the government will continue to preside over a broken housing economy with a reluctance to address the fundamental drivers of our housing crisis.
Southwark isn’t hanging around waiting for these changes – we are already developing the practical tools that would support such a reformed land trading and viability testing system, including a Viability Benchmarking Model that would standardise the data sources that inform cost value and yield figures that viability consultants manipulate to plead their client’s case. Further to this, we are also developing a prototype towards a standardised Land Value Register that reports live existing use values for sites allocated for residential development: this could be used to create either a formal cap for surveyors and developers in the land trading system, or better still, provide a basis for local authorities to support more rational land assembly for the purposes of affordable housing, either from itself or another builder.
Today, Dulwich and West Norwood MP Helen Hayes will begin the process of airing these arguments in the House of Commons and rallying a cross-party consensus around a new Planning (Affordable Housing and Compensation) Bill. The housing crisis cannot be solved without this long overdue land reform for cities, and our uncertain times demand this bold kind of thinking.
Leo Pollak is a Labour councillor for South Bermondsey in the London Borough of Southwark.